State liquor industry at odds over fees

The private-run market for spirits created by I-1183 is only 2 years old, but it has spawned its fair share of legal wrangling as stakeholders seek to improve their odds in the new business landscape.

Restaurants and retailers, including Costco Wholesale, have been clamoring for a break from the 17 percent fee on gross spirits revenues that stores must pay when selling to eateries and bars.

They argue that distributors get an unfair advantage because they’re beholden to a lower, 10 percent fee and can offer restaurants and bars lower prices. Moreover, restaurants could benefit from the sheer pricing power enjoyed by giants such as Costco, they say. “We could pass those savings on to the little guys,” said Costco general counsel John Sullivan.

But distributors say they agreed to pay the state $150 million in fees during the first year of privatization and that grocery stores “want the same privilege for nothing,” said John Guadnola, a spokesman for Washington spirit distributors.

State lawmakers gave small liquor stores a break from the 17 percent fee, but a respite for the larger grocers became stalled in the Legislature.

In addition, owners of former state stores say they’re being crushed by a distributor practice that’s known as “channel pricing.”

That means that distributors can offer discounts to restaurants and bars, even as they sell to retailers at higher prices. Last year the Washington State Liquor Control Board sided with the liquor-store owners, but in early June it reversed its decision. The rules have not been adopted, and a public hearing is scheduled for next month.